Below are listed various costs that are incurred by various business entities: C

Question

Below are listed various costs that are incurred by various business entities:

Commissions paid to Avon representatives
Recurring advertising costs by a physcian's office
The cost of hardware installed on sailboats
The cost of rent on facility
Shipping costs from a book distribution center
Insurance on a factory assembly facility
Wages paid to temporary personnel
Depreciation of assembly line facilities af Ford.

From the information, select the items that would be correctly classified as a variable cost.

Explanation / Answer

1) Commissions paid to Avon representatives No, these are usually percentages of profit/sales etc 2) Recurring advertising costs by a physician's office No, these do not depend on the amount of services provided, same regardless 3) The cost of hardware installed on sailboats Yes, it will vary with the amount of sailboats that need the hardware 4) The cost of rent on facility No, this is a fixed cost 5) Shipping costs from a book distribution center Yes, the cost will vary with the amount of books that need to be shipped 6) Insurance on a factory assembly facility No this is a predetermined amount per the policy, and does not relate to the number of units produced 7) Wages paid to temporary personnel Yes, payments to temporary personnel are usually charged by the hour, and so are variable. If it is a salary package, then no. 8) Depreciation of assembly line facilities at Ford. No, depreciation is fixed. It can seem variable, but this is only due to which depreciation method used. Overall in the end, the total depreciation amount is the same

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